Dollar may be higher with higher returns; euro awaits inflation data By Investing.com

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Investing.com – The U.S. dollar rose in early European trading on Wednesday ahead of key inflation data, helped by rising expectations that the Federal Reserve will delay interest rate cuts until later in the year.

At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 104.670, one step away from a nearly two-week low of 104.33 that he reached on Tuesday. .

The dollar was helped by rising interest rates

The dollar remains within a tight trading range as traders cautiously await Friday’s release of the US report – the Federal Reserve’s preferred inflation measure.

That said, yields have received a small boost after U.S. Treasury yields rose following a lackluster debt auction for two- and five-year Treasury sales, casting doubt on demand for U.S. Treasuries.

“Tonight, $44 billion worth of seven-year US government bonds will be auctioned,” analysts at ING wrote in a note. “The US government’s ability to finance its debt at the same price will be a hot topic in financial markets this year, but so far higher US yields have been associated with a stronger dollar. We feel like the relationship could break down at some point, but maybe that’s a story for next year.”

In addition, questions remain about the timing of the Federal Reserve’s first rate cut, and with inflation remaining above target, the possibility of another rate hike remains.

“I don’t think anyone has taken interest rate hikes completely off the table,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Tuesday. “I think the chance of us raising rates is quite small, but I don’t want to take anything off the table.”

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The core PCE index is expected to remain broadly stable on a month-to-month basis, but any sign of continued inflationary pressures will boost the dollar.

The euro awaits the German CPI release

In Europe, it traded 0.1% lower to 1.0852 ahead of the release of , which will provide clues to the strength of the general release at the end of this week.

The country is preparing for a rate cut next week, but there is uncertainty about what comes next, with the euro on track for a 1.7% gain against the dollar this month, its first month of gains in 2024.

“The highlight of the Eurozone calendar this week will be Friday’s publication of the Eurozone flash CPI for May. As input for this publication, today’s German CPI data will be used, with the consensus expecting a slight increase from 2.2% to 2.4% year-on-year,” ING said.

“That won’t stop the European Central Bank from cutting rates next week, but the market may continue to scale back expectations of further rate cuts this year.”

rose to 1.2762, while the election campaign is now in full swing.

“Labour’s shadow chancellor, Rachel Reeves, is making all the right budget noises – although the Labor Party may conclude they have put themselves in a bind from a policy perspective if they win the July general election,” ING analysts said.

BOJ offers little support for the yen

In Asia, trading was largely unchanged at 157.16, with the Japanese currency receiving little support from comments from Bank of Japan officials.

BOJ member Adachi Seiji warned that the central bank could hastily tighten policy if yen weakness affects inflation. He also predicted that inflation would increase in the summer-autumn period.

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But Seiji also said the BOJ should be cautious in tightening policy and would remain accommodative in the short term to promote the strength of Japan’s economy.

traded 0.1% higher at 7.2489 after a soft midpoint fix from the People’s Bank of China pushed the pair to its highest since mid-November.

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